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Ipca: Regulatory woes continue - Views on News from Equitymaster
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Ipca: Regulatory woes continue
Jul 6, 2015

Ipca has announced its 4QFY15 results. The company has reported a decline of 16.3% YoY in its sales and a fall of 94.3% YoY in the bottomline. Here is our analysis of the results.

Performance summary
  • Net sales decline by 16.3% YoY during the quarter due to poor growth in exports.
  • Operating margins too witness sharp fall and stand at 5.4% for the quarter vs 24.3% in 4QFY14.
  • Consequently, even the net profits take a sharp hit and decline by 94% YoY.

Standalone - Financial performance
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 7,438 6,227 -16.3% 32,000 30,599 -4.4%
other operating income 58 52 -10.0% 348 252 -27.5%
Expenditure 5,673 5,943 4.8% 24,296 25,646 5.6%
Operating profit (EBDITA) 1,823 337 -81.5% 8,052 5,205 -35.4%
EBDITA margin (%) 24.3% 5.4%   24.9% 16.9%  
Other income 62 143 130.0% 214 358 66.9%
Interest (net) 63 83 31.7% 246 256 4.2%
Depreciation 260 577 121.9% 1,009 1,772 75.6%
Profit before tax 1,563 (179)   7,012 3,535 -49.6%
Forex (gain)/loss (182) (225)   721 (43)  
Tax 375 (32)   1,517 1,016 -33.0%
Profit after tax/(loss) 1,370 78 -94.3% 4,774 2,561 -46.4%
Net profit margin (%) 18.4% 1.3%   14.9% 8.4%  
No. of shares (m)         252.4  
Diluted earnings per share (Rs)         21.0  
Price to earnings ratio (x)*         30.5  
*based on trailing 12 months earnings

What has driven performance in 4QFY15?
  • The company continues to reel under USFDA issues. Consequently, the performance in the current quarter was also poor.

    Business Mix
    (Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
    Formulations 5,737 4,691 -18.2% 24,352 23,679 -2.8%
    (% of revenues) 77.1% 75.3% 76.1% 77.4%
    Domestic 1,966 2,290 16.5% 9,694 11,287 16.4%
    Export 3,771 2,402 -36.3% 14,658 12,392 -15.5%
    API 1,701 1,535 -9.8% 7,648 6,920 -9.5%
    (% of revenues) 22.9% 24.7% 23.9% 22.6%
    Domestic  366  326 -10.9% 1,646 1,783 8.3%
    Export 1,335 1,209 -9.4% 6,002 5,137 -14.4%
    Total 7,438 6,227 -16.3% 32,000 30,599 -4.4%

  • The company's domestic business witnessed good growth. However, exports continued to remain a drag. Not only were sales impacted from the US segment, but lower anti-malarial institutional business and currency depreciation in emerging markets also hampered the company's performance. In FY16, the anti-malarial business is expected to regain momentum post the WHO clearance. The management is in the process of resolving issues at its manufacturing facilities. However, there is no clarity on the time by when these issues will get resolved.

  • Poor topline growth along with costs pertaining to plant clearance and depreciating currencies in emerging markets all together hit the margins. For FY16, the management has guided for EBITDA margins in the range of 16-18%.

  • While the company reported a loss at the PBT level, the net profits were down by 94% YoY. Increase in forex gains helped the bottom line to some extent.
What to expect?

At the current price of Rs 641, the stock is trading at a price to earnings multiple of 12.3 times our revised estimated FY17 earnings.

On the back of compliance issues, the company's performance has been severely impacted. Ipca has been implementing comprehensive measures at its three facilities which are under the import ban. As seen in last couple of quarters, the growth and margins have been significantly impacted. It is expected that FY16, will witness some recovery on sales and margin front.

Owing to Ipca's good management, we expect the company to be able to resolve the compliance problems over a period of time. However, one should not buy the stock at current levels. Those who have the stock in their portfolio can continue to Hold on to the same.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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